Charles Schwab Investment Management

Biweekly insights on the latest global investment news regarding equities and fixed income from our leadership team.

December 14, 2017

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  • Equities: Mounting tax bill intrigue

    Omar Aguilar, Ph.D.

    Chief Investment Officer,
    Equities and Multi-Asset Strategies

    Fed rate hike: Nothing to see here, move along

    Equity markets took yesterday’s quarter-point rate hike by the Fed in stride. More noteworthy was the Fed’s forecast for three rate hikes next year alongside comments that the synchronized global economic recovery continues. This latter point, combined with global capital market stability and ongoing U.S. labor market strength, was cited by Janet Yellen as the rationale for the Fed’s recently increased growth forecasts. In her typical dovish style, Yellen also mentioned that a gradual, systematic approach to raising rates should eventually lead to normalized policies, and over the medium-term achieve the Fed’s inflation targets.

    Mounting tax bill intrigue

    Beyond the Fed, investors seem anxious to learn about the latest tax revision details. At a high level, companies and equity investors alike seem poised to benefit if the currently proposed revisions become law, although whether or not this would quicken economic growth remains to be seen.

    The harbinger of a steeper yield curve

    The European Central Bank was one of many central banks around the world that recently provided guidance regarding the timing and size of reductions to economic stimulus efforts. These announcements most notably affected the U.S. dollar’s relative performance, while serving as a catalyst for potentially higher U.S. Treasury yields that could steepen the relatively flat yield curve.

  • Fixed Income: Farewell Janet, what a year

    Brett Wander, CFA

    Chief Investment Officer,
    Fixed Income

    Janet Yellen’s final press conference yesterday underscored the following market highlights from her final year as Fed chair.

    Remarkably stable bond yields

    Despite three Fed rate hikes in 2017, longer-term bond yields have remained remarkably stable. Yields on 10-year Treasuries began 2017 near 2.40%, and guess what, that’s right where they are today. Inflation has remained stubbornly low. Janet can’t really explain it, and neither can we. The economy is moving in the right direction, even if some aspects aren’t fully understood. Yellen has intimated that maybe a 1.5% inflation rate will be okay.

    Most persistent stock rally . . . EVER

    If things stay on track during the final weeks of December, 2017 will be the first calendar year ever in which the U.S. stock market experienced positive returns in EVERY month. Fair or not, Fed chairpersons are measured and remembered by the equity market’s performance during their watch. No previous Fed chair has overseen an equity market with the consistency that we’ve seen this year. It’s a legacy that will likely endure.

    Bitcoin—Yellen actually commented on it

    Until this year, bitcoin was barely mentioned in the press, and certainly wasn’t a topic any Fed chair had publicly addressed. Yesterday Yellen stated that bitcoin seemed “highly speculative.” We certainly can’t argue with THAT. But remember, she’s made similar comments about the U.S. equity markets. Crazy!